Low UK bus profitability means investment cannot be sustained unless councils take steps to help the company grow revenue, says chief executive

 

FirstGroup will take delivery of 100 fewer new buses in 2018

 

FirstGroup has carried out its threat to stop buying new buses in towns and cities where local authorities are failing to provide adequate bus priority and pro-bus measures.

In the year to April 2018, First said it expected to take delivery of 180 new buses, approximately 100 fewer than the previous year.

Over the past 12 months, chief executive Tim O’Toole has repeatedly warned that low UK bus profitability meant investment could not be sustained unless councils take steps to help the company grow revenue and reduce costs, particularly by combatting traffic congestion on bus routes. Announcing the new investment policy at the presentation of First’s half year financial results, O’Toole said areas where new bus deliveries would be concentrated included Bristol and Leeds.

During the half year, cost cutting saw operating profit grow from £13.5m to £15.8m although the profit margin remained comfortably the lowest of any major bus group at 3.7%. Revenue rose slightly to £428.2m, but patronage continued to fall with commercial passenger numbers down 0.3% in the six months.

“We are moving forward by confining our future investment to those areas that can generate the necessary returns, and that requires local authorities to provide the environment in which reliable bus services can be delivered,” O’ Toole explained.

We are now saying in the current environment we can’t be as patient… FirstGroup has put so much capital into its UK bus business

He said First had been patient in continuing to invest in the hope that profit margins would improve significantly across the UK bus division as a whole. However, he added: “We are now saying in the current environment we can’t be as patient… FirstGroup has put so much capital into its UK bus business. It can’t continue down this route unless we have partners who are going to work with us.”

Meanwhile, in the UK rail division, operating profit for the six months increased from £22.1m to £31.1m largely as a result of compensation payments from Network Rail for disruption caused by engineering works on the Great Western Network and a four week contribution from the company’s new South Western Railway franchise. However, First said it had needed to inject a small payment into the TransPennine franchise from its reserve fund designed to ensure the business has sufficient cash to meet contractual obligations if financial performance falls below expectations.

Across the group, operating profit was flat at £89.4m due to reduced profits at the North American school bus, transit and coaching businesses. Severe weather including hurricanes accounted for £6m of the profit fall in the Americas.

 

This article appears in the latest issue of Passenger Transport.

DON’T MISS OUT – GET YOUR COPY! – click here to subscribe!